Before your family expands, make a realistic assessment of your wallet

Before your family expands, make a realistic assessment of your wallet

By Andrew Housser

Retirement can sound almost too good to be true: No more daily grind, a world of travel opportunities, stacks of books to read, and leisure time to spend with the family. Unfortunately, it is getting to be more of a challenge for many Americans to enjoy their golden years. Fewer than half know how much to save in order to maintain something close their current lifestyle. And a third of workers with access to an employer-sponsored retirement fund do not participate. Most Americans can expect to spend 20 years of their lives in retirement, so it makes sense to get a handle on their their finances for the future.

1. Start saving now. If you are in your 20s or 30s, retirement may seem like a long way off. But as older people are well aware, it will be here sooner than you think. Even if the amount you are saving right now seems small, it adds up over time. If you can only afford to set aside $50 or $100 a month, start with that. Aim to increase that amount every three months – or at least annually.

2. Determine your retirement needs. It is estimated that you will need 70 percent to 90 percent of current income to maintain your standard of living while in retirement. To get a sense of what that means, use the AARP retirement calculator. You will need to plug in information for you and your spouse, such as: age, salary, savings, expected Social Security income and lifestyle. In general, those in their 20s and 30s should strive to save 10 percent of their income. It is a good idea to increase this amount with every pay raise. People in their 40s and 50s should be putting away 20 percent of their incomes. If you are still working in your 60s and 70s, keep saving as much as you can.

3. Consider retirement plan options. Take advantage of employer-sponsored plans like 401(k)s. You will automatically lower your taxes while enjoying tax-deferred growth on your savings. Many employers will match your contribution up to a certain amount – which is like getting free money. If a 401(k) is not an option, open an individual retirement account (IRA). With a traditional IRA, your savings will continue to grow tax-deferred until you withdraw them. With a Roth IRA, you make contributions using after-tax dollars, but then pay no taxes when you withdraw the funds. Annuities may be another option for some people. These tax-deferred plans are offered through life insurance companies.

4. Make retirement funds off limits. It can be tempting to dip into retirement savings when unexpected expenses crop up. But doing so will cost you, now and in the future when you retire. You lose principal and interest when you withdraw from your retirement account. You also may lose tax benefits and have to pay a penalty for early withdrawal. It is better to pay for unexpected expenses with money from an emergency fund. Aim to set aside at least six months of living expenses in your emergency fund, in addition to your retirement savings.

5. Do not count out Social Security. If you were to retire today, Social Security would pay benefits that equal about 40 percent of what you earned before retirement. It is hard to say with accuracy exactly how long Social Security will be around or the payouts might be. How much you might see greatly depends on how soon you plan to retire. The 2012 annual report from the Social Securities Trustees indicates that full benefits will cease in 20 years. However, even if Congress does not act to change this, there should still be sufficient assets to pay 75 percent of owed benefits after this time. The U.S. Social Security Administration's retirement calculator can give you some idea of what your benefits might look like.

The idea of being able to save enough to enjoy a happy and secure retirement might seem daunting, but no matter what your circumstances, it is better to save something than nothing. For a personalized projection, talk to a financial adviser, who can answer your questions and provide practical advice as to what you should be doing now to protect your future.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.

Retirement can
sound almost too good to be true: No more daily grind, a world of travel
opportunities, stacks of books to read, and leisure time to spend with the
family. Unfortunately, it is getting to be more of a challenge for many
Americans to enjoy their golden years. Fewer than half know how much to save in
order to maintain something close their current lifestyle. And a third of workers
with access to an employer-sponsored retirement fund do not participate. Most
Americans can expect to spend 20 years of their lives in retirement, so it
makes sense to get a handle on their their finances for the future.

1.Start saving now. If you are in your 20s or 30s, retirement may seem like a long way off.
But as older people are well aware, it will be here sooner than you think. Even
if the amount you are saving right now seems small, it adds up over time. If
you can only afford to set aside $50 or $100 a month, start with that. Aim to
increase that amount every three months – or at least annually.

2.Determine your retirement needs. It is estimated that you will need 70 percent to 90
percent of current income to maintain your standard of living while in
retirement. To get a sense of what that means, use the AARP retirement calculator. You will need to plug in
information for you and your spouse, such as: age, salary, savings, expected
Social Security income and lifestyle. In general, those in their 20s and 30s
should strive to save 10 percent of their income. It is a good idea to increase
this amount with every pay raise. People in their 40s and 50s should be putting
away 20 percent of their incomes. If you are still working in your 60s and 70s,
keep saving as much as you can.

3.Consider retirement plan options. Take advantage of employer-sponsored plans
like 401(k)s. You will automatically lower your taxes while enjoying
tax-deferred growth on your savings. Many employers will match your
contribution up to a certain amount – which is like getting free money. If a
401(k) is not an option, open an individual retirement account (IRA). With a
traditional IRA, your savings will continue to grow tax-deferred until you
withdraw them. With a Roth IRA, you make contributions using after-tax dollars,
but then pay no taxes when you withdraw the funds. Annuities may be another
option for some people. These tax-deferred plans are offered through life
insurance companies.

4.Make retirement funds off limits. It can be tempting to dip into retirement
savings when unexpected expenses crop up. But doing so will cost you, now and
in the future when you retire. You lose principal and interest when you
withdraw from your retirement account. You also may lose tax benefits and have
to pay a penalty for early withdrawal. It is better to pay for unexpected
expenses with money from an emergency fund. Aim to set aside at least six
months of living expenses in your emergency fund, in addition to your
retirement savings.

5.Do not count out Social Security. If you were to retire today, Social Security would pay benefits that equal about 40
percent of what you earned before retirement. It is hard to say with
accuracy exactly how long Social Security will be around or the payouts might
be. How much you might see greatly depends on how soon you plan to retire. The
2012 annual report from the Social Securities Trustees indicates that full
benefits will cease in 20 years. However, even if
Congress does not act to change this, there should still be sufficient assets
to pay 75 percent of owed benefits after this time. The U.S. Social Security
Administration's retirement calculator can give you some idea of
what your benefits might look like.

The idea of being
able to save enough to enjoy a happy and secure retirement might seem daunting,
but no matter what your circumstances, it is better to save something than
nothing. For a personalized projection, talk to a financial adviser, who can
answer your questions and provide practical advice as to what you should be
doing now to protect your future.

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